Posted on 01/28/2008 11:42:08 AM PST by 300magnum
By Andrew Hurst and Thierry Leveque 44 minutes ago
PARIS (Reuters) - Exchange officials warned Societe Generale (SOGN.PA) about rogue trader Jerome Kerviel's deals late last year, a Paris prosecutor said, piling pressure on the French bank to explain why the trades were not discovered earlier.
The bank has said it only found out 10 days ago that one of its junior traders had run up a staggering 50 billion euro wager on European share prices, forcing it to unwind the positions into sliding markets at a cost of 4.9 billion euros.
French President Nicolas Sarkozy also turned up the heat on the bank on Monday, saying its top managers would have to accept their share of responsibility for the world's biggest trading scandal.
"When there is an event of this nature, it cannot remain without consequences as far as responsibilities are concerned," Sarkozy told reporters while on a visit to a university.
SocGen, France's second-biggest bank, was also hit by lawsuits over share sales that were made by a director before the scandal broke, and over the way it unwound Kerviel's bets.
SocGen's chairman, Daniel Bouton, who last week offered to leave but was asked to stay on by the board, said his resignation remained on the table, suggesting he may feel he has to go as criticism mounts of his handling of the crisis.
After examining preliminary evidence, a prosecutor said Kerviel, 31, had admitted hiding his activities from superiors and had said others also played fast and loose with bank rules.
Prosecutor Jean-Claude Marin said Eurex, a derivatives exchange owned by Deutsche Boerse (DB1Gn.DE), questioned Kerviel's trading positions in November, but that the former back office worker had been able to sidestep questions from his employer.
"Eurex alerted Societe Generale in November 2007 about the positions taken by Jerome Kerviel. Questioned by the bank, he produced a fake document to justify the risk cover," Marin said.
SocGen, which in recent years has become a global leader in financial derivatives trading, has said it was completely in the dark about Kerviel's alleged illicit trades until it spotted a discrepancy on January 18, triggering an internal investigation.
Eurex said its processes and controls "functioned correctly at all levels, also in this case."
KERVIEL "OVERWHELMED"
Describing Kerviel as "very upset" and "overwhelmed by events," prosecutor Marin said the trader had told investigators he had been promised a 300,000 euro bonus for 2007.
The prosecutor said Kerviel had been sitting on a paper profit of 1.4 billion euros at the end of last year. He did not make clear whether Kerviel's employers were aware of this.
The bonus could form a key part of any charge for fraud brought against Kerviel, because he has maintained that he never directly profited from his allegedly illicit trades.
In a new political twist to the scandal, Bank of France chief Christian Noyer revealed that he delayed telling the government about it for several days because he feared a leak.
"I considered that the huge size of the position meant that any risk of an involuntary leak -- involuntary of course -- should be removed because that was the major risk that could happen in the first hours," he told BFM radio in an interview.
Kerviel's lawyer has hit back at suggestions that he alone masterminded the world's biggest trading scam from his desk.
The prosecutor said he had requested that Kerviel, who turned himself in on Saturday, be held in temporary detention.
Kerviel was taken in a silver van with darkened windows from the financial police headquarters in southeast Paris to appear before the judge, who would decide whether to place him under formal investigation. This is a step short of formal charges.
But legal sources said the judge examining the case -- Renaud Van Ruymbeke, an independent-minded veteran of France's biggest financial scandals who has clashed with Sarkozy -- was by no means guaranteed to order his detention.
Market traders have expressed disbelief that such huge trades by a rogue trader could have gone undetected for so long.
An analyst at a credit rating agency, who formerly worked in risk control at two top banks, said any bank could have been duped by a determined enough employee with enough skill.
"There are often times when traders ringfence certain trades which do not get captured in a bank's end-of-day reporting process," said the analyst
SocGen's shares tumbled, falling as much as 9 percent and closing 3.8 percent lower at 71.1 euros. The stock has now dropped almost 17 percent since the scandal broke, wiping about 6.7 billion euros of the bank's market value.
LEGAL THREAT
Adding to the bank's woes, a French lawyer acting for about 100 small shareholders said he had sued SocGen over the way it unbundled billions of dollars in share deals.
The lawyer, Frederik-Karel Canoy, said SocGen should have informed its shareholders and the markets about its difficulties before embarking on a massive selling spree that hurt investors.
He alleged insider trading and market manipulation.
Both Canoy and small shareholder activist group APPAC also said they had filed complaints about the sale of a million shares by a SocGen director, Robert Day, on January 9 and January 10.
SocGen said Day sold the shares well before fraud was found.
(Additional reporting by Tim Hepher, Brian Rohan, Lucien Libert, Crispian Balmer, Francois Murphy, Olesya Dmitracova and Tom Miles; Editing by Quentin Bryar and Andrew Callus)
Isn’t this the same thing that happened a few years back?......
Maybe....
http://en.wikipedia.org/wiki/Barings_Bank
The original sales document of the Louisiana purchase was exhibited in the entrance hall of Baring’s London offices until the bank’s collapse in 1995.
Google “Nick Leeson.”
That one was for 1.4 billion according to your link. This one is for 4.9 billion.
Yes, but the scenario is similar. One guy, unmonitored, un supervised, brought down a financial institution that was hundreds of years old, all in, literally,one day...........
I would wager this guy had a lot of help.
Depends if you believe Bouton’s claim that SocGen management knew nothing about Kerviel’s activities until the evening of January 18. If you believe that (in spite of the growing mountain of evidence indicating otherwise), then this would resemble the Nick Leeson case.
If they had known of his bogus transactions wouldn’t they have fired him immediately?........
Leeson’s stunt cost EUR 1.4 billion. Kerviel’s cost EUR 1.5 billion. When inflation is accounted for, Leeson still easily holds the record for losses by a trader. It was the bumbling dump of Kerviel’s positions, directed by Bouton and Noyer, that bumped the tab up to EUR 4.9million. If you split the dumping losses between Bouton and Noyer, that works out to EUR 1.7 billion apiece. I’d say Leeson is still the grand champion with inflation taken into account, followed by a tie between Bouton and Noyer, and then Kerviel.
I wonder whatever happened to Leeson?.....
Why would they have done that? He was IN THE MONEY at the end of December. And today, it’s reported that Kerviel told investigators that he had been promised a bonus of EUR 300,000 for his 2007 accomplishments — wildly higher than his reported total salary+bonus of EUR 147,000 for the prior year. If that can be confirmed (and I suspect it can be, since bonus numbers are usually distributed in writing), it would beg the question, why would Kerviel’s bosses have been planning to pay him such a massively increased bonus, if they thought he’d just been doing a reasonably good job in a position which wouldn’t normally get such a high bonus? It would make a heck of a lot more sense if they had already known exactly what ALL his positions were worth at the end of December, when bonus amounts were decided on.
He’s doing quite well. He’s an executive with an Irish pro “football” (soccer) club — a dream job for most traders, and last week was selling interviews to the highest media bidders through his agent. He makes a good deal of money on the lecture circuit under ordinary circumstances, but his earning power for talking just got a huge temporary boost last week.
Sounds like they may be making him the fall guy for their bungling?......
Bungling, and perhaps deliberate wrongdoing. The Eurex (German derivatives exchange) notified SocGen last November of suspicions about Kerviel’s trading. My guess is that his immediate supervisors, and probably a layer or two above that, have known what he was up to since November if not earlier. Somebody pretty high up may have been hoping his activities would offset the firm’s huge losses on sub-prime mortgage related CDOs. Interesting commentary piece in the Financial Times put Kerviel’s activities into the larger perspective of SocGen’s overall situation.
http://www.ft.com/cms/s/0/fe6ea5f0-cd41-11dc-9b2b-000077b07658.html
Lemons....lemonade.........
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